April 25, 2016

 The insured brought an action against the insurer to recover expenses for transporting crops and drying them at other facilities after a fire destroyed a grain handler dryer, fans, and parts covered by an agricultural endorsement to a farm and ranch policy. This case is Huether v. Nodak Mutual Insurance Company, 871 N.W.2d 444 (2015).

 Huether contracted with Nodak Mutual to provide insurance coverage for his house, buildings and structures on his farm. Huether added an equipment endorsement insuring his agricultural equipment to the policy. This endorsement provided coverage for direct physical loss or damage to the equipment, including a grain handler dryer, fans, and parts. Subsequently, a fire broke out and destroyed these items.

 Nodak Mutual paid for the loss to the dryer and the other equipment. However, when Huether put in a claim for expenses for transporting to and drying his crops at a grain drying facility, the insurer denied coverage. The insurer said that the coverage was for direct physical loss or damage and there was no coverage for loss of use claims. Huether sued seeking coverage for the denied claim. The district court entered summary judgment in favor of the insurer and this appeal followed.

 The Supreme Court of North Dakota noted the argument made by Huether that the phrase “direct physical loss or damage” language included expenses for transporting to and drying his crops at a grain drying facility since neither the policy nor the endorsement defined the scope of coverage for direct physical loss or damage. Huether alleged that without a definition, the “direct physical loss or damage” phrase is either ambiguous or it should be read to incorporate the defined term of property damage.

 The court sided with the district court in saying that since “direct physical loss” is undefined in the policy, the ordinary meaning of the phrase should be applied. In keeping with this point, a direct loss is one that flows immediately and naturally from the causal event. The plain meaning of the word “direct” indicates an exclusion of damages that are not direct, such as the indirect loss of use damages. The plain meaning of “physical” means material or tangible as opposed to intangible, economic, or lost profits damages. The Supreme Court found that the district court did not err in using the ordinary meanings of the words to find that Huether's costs of transporting and drying grain did not qualify as the type of loss or damage directly caused by the risk insured against.

 Huether also argued that the doctrine of contract of adhesion applies, but the court said that the doctrine applies only to ambiguous policies. In this instance, the policy was found not to be ambiguous.

 The ruling of the district court was affirmed.

 Editor's Note: The Supreme Court of North Dakota rules that loss of use expenses are not direct physical loss or damage, and so, the farm and ranch policy with the agricultural equipment endorsement did not cover a claim for transporting and drying grain at a facility after a fire destroyed the insured's own equipment.